Reference

Introduction

  • Two narratives of post colonial economic development
    • Macro indicators
    • Succession of regimes
  • Both the narratives are important.

The four regimes of accumulation in Independent India (1947-2011)

India on the Eve of Independence

  • Destroyed traditional industries
  • Deindustrialised the country.
  • Left the country with challenges:
    • Self sufficiency in agriculture
    • Heterogeneous groups and their vested interests
    • Technological dependence on the metropolitan economies.

Regime #1

Pre-eminence of Planning and State Capitalism (1950-67)

Pre-eminence of Planning and State Capitalism (1950-67)

  • Economy under Nehru
    • State directed
    • Emphasis on heavy industries
  • Growth of industry - 5.8%
    • Government consumption (G) - 6%
  • State as the main driver of growth.
  • Investment in industry - 7%
  • Dual role of public investment.
  • Resources allocated to long-term industrial investments.

Pre-eminence of Planning and State Capitalism (1950-67)

  • Import Substitution Regime
    • To protect infant domestic industries.
    • To increase exports.
  • Exports growth = 1%
  • Imports were still higher
    • India’s dependence for food, energy, and machinery.
    • Imports grew by 40%.
    • Current Account Deficit peaked to 3% by 1965.
    • More foreign aid needed to finance CAD.

Pre-eminence of Planning and State Capitalism (1950-67) : Class Dynamics & Distributional Effects

  • Benefits to domestic capital
    • Limited expansion of public sector
    • Domestic capital protected from external competition.
  • Benefits to urban skilled workers
  • Unsuccessful land to tiller policy
    • Land redistribution blocked by large landlords
    • Limited redistribution
  • Low growth in agriculture

Pre-eminence of Planning and State Capitalism (1950-67) : Class Dynamics & Distributional Effects

  • Greater urban-rural inequality
  • Absence of welfare policy
  • State \(\rightarrow\) GDP growth; Economic Planning \(\rightarrow\) Distribution

Pre-eminence of Planning and State Capitalism (1950-67) : Class Dynamics & Distributional Effects

  • Urban & rural consumption inequality declined

Crisis towards the mid 1960s

  • Imbalances in agriculture sector.
  • Inadequate public investment
  • Failure of land reforms
  • Growth of agri sector: 1.7%
  • Structural imbalances led to BoP crisis in 1965 and 1966

Crisis towards the mid 1960s

  • BoP crisis
    • Lack of monsoon
    • Fall in agri output (10%)
    • Fall in private consumption
    • Import of food grains increased in 1966
  • Imports \(\uparrow\) 11% in 1965 \(\rightarrow\) 28% in 1966
    • Led to BoP crisis
    • Pressures to devalue
    • Bring down the import substitution regime.

Data Source: World Bank

Ref for events: Inflation In India: Status and Issues by Y.V. Reddy

Regime #2

Green revolution and populism (1967-80)

Green revolution and populism (1967-80)

  • Agricultural crisis \(\rightarrow\) Change in policy (land reform)
  • The New Agricultural Strategy (1965)
    • Improve productivity
      • Technological modernisation
    • Investments
      • Crop wise and region wise
  • Shift from public to private sector investments

Green revolution and populism (1967-80)

  • State’s role
    • Increased agri credit & fertilizer subsidies
    • Increased mechanisation
    • Support minimum prices

Green revolution and populism (1967-80)

  • Role of the state in industrial development declined.
  • Industrial slackening \(\rightarrow\) GDP \(\downarrow\) 4.5%
  • Exports \(\uparrow\) 7.5%
  • Increase in government regulation of private and foreign enterprises
    • FERA, 1973
    • MRTP, 1969
    • Nationalisation of banks
  • External policy
    • Improve current account
    • Decrease dependence on external powers.
  • 1973: Positive CAD in India for the first time.

Green revolution and populism (1967-80): Class dynamics and distributional effects

  • Growth of certain crops and regions under Green Revolution.

  • Large landholders and the rural elite benefited the most.

Green revolution and populism (1967-80): Class dynamics and distributional effects

  • Rural rich emerged \(\rightarrow\) increased powers \(\rightarrow\) formation of Interest Groups (politically motivated).
    • For instance Lok Dal (led by Charan Singh) that would go on to dethrone Congress in 1978.
  • Subsidies \(\uparrow\) \(\rightarrow\) public investment in industries \(\downarrow\)
  • Green revolution \(\rightarrow\) rural inequality
    • Compensatory policies: Garibi hatao
  • 1070s:
    • PDS
    • IRDP
  • Poverty declined from 50% to 40%

Rural inequality (1967-80)

Urban inequality (1967-80)

Looming Crisis of the 1970s

  • In 1971 crisis developed due to
    • Decline in public investment \(\rightarrow\) Decline in private corporate investments
    • Change in the expenditure patterns
      • Capital expenditure to revenue expenditure
      • Increased expenditure funded by
        • raising fiscal deficit
        • increased external commercial borrowings (ECB)
    • Collapse of the ISI regime (beginning of 1980s)

Regime #3

High growth with stagnant inequality (1980-91)

High growth with stagnant inequality (1980-91)

  • IMF loan worth $5.2 bn.
  • Partial liberalisation
  • Structural transformation of India
    • Relaxation of Industrial licensing
    • Decontrol of prices of essentials
    • Slash import duties

High growth with stagnant inequality (1980-91)

  • GDP growth of 5%

High growth with stagnant inequality (1980-91): Class dynamics and distributional effects

  • Regimes 1 & 2 \(\rightarrow\) low growth \(+\) mild increase in inequality
  • Regimes 3 & 4 \(\rightarrow\) high growth \(+\) very different distributional dynamics
  • Shift from a progressive nation state to pro-business state
  • Formation of new business groups.
    • Rural elite migrating to urban spaces
    • Emergence if IT professionals
  • The new business groups \(\rightarrow\) regional and national parties
    • Opposition to the License Raj

High growth with stagnant inequality (1980-91): Class dynamics and distributional effects

  • Decrease in income inequality
  • Marginalised class benefited (IRDP)
  • Inequality declined because
    • Political unrest & the Maoist struggles
    • Land reforms in Bengal and Kerala (under Communism)
  • Improvements in the living conditions of all the classes.

High growth with stagnant inequality (1980-91): Class dynamics and distributional effects

  • Increase in \(C\)
  • Vakulabharanam(2010)
    • Gini coefficients stayed almost the same/ marginal decline between 1983-84 to 1993-94.

See Table 5 and Fig 2.

Deepening twin crisis by the late 1980s

  • Imports grew by 7%
  • Exports fell
  • CAD started to rise to 3% of GDP
  • Foreign aid dependency grew
  • Rise in fiscal deficits (from 3.5% to 5.5%)
  • Caught in the trap of debt servicing
  • Fall in public investment \(\rightarrow\) deteriorating public investment \(\rightarrow\) Investment crisis in 1991
  • Rising fiscal & CAD would culminate to the crisis in 1991.

Regime #4

High Growth and Rising Inequality (1991-2012)

High Growth and Rising Inequality (1991-2012)

  • The twin crisis problem
    • Fiscal deficit & BoP/CAD
  • International credit rating fell (in 1991)
  • Political crisis evolved
  • Shift in development process
    • State to market

High Growth and Rising Inequality (1991-2012)

  • Liberal Reforms Package
    • Fiscal austerity measures
    • Liberalisation of external sector
    • Financial reforms and market directed development
  • This regime saw the fastest economic growth
  • Growth dynamics
(1991-2000) (2003-2012)
Medium growth High Growth
Fiscally disciplined state High expenditures
Unstable investment High Investment
Low exports and high imports High Exports and Imports

High Growth and Rising Inequality (1991-2012)

  • Investment of 15% per annum contributed to 55% of growth
  • Massive FDI helped decrease dependency on commercial borrowings and foreign aid.

High Growth and Rising Inequality (1991-2012): Class and distributional dynamics

  • Implemented a Neoliberal Structural Adjustment Programme
  • Accumulation through creating conducive environment for private players.
  • Growth enclave
    • Rapid growth in private luxury consumption.
    • Rapid growth in private investment.
    • Rapid growth in exports.
  • Urban elites engaged in Growth Enclave benefitted the most.
    • Domestic capital
    • Skilled workers
    • Marginal class

High Growth and Rising Inequality (1991-2012): Class and distributional dynamics

  • Low investment in agriculture
  • Marginalised and small farmers were mostly hit
  • Rate of increase in Consumption inequality has been the fastest

High Growth and Rising Inequality (1991-2012): Class and distributional dynamics

  • Marginal farmers, tenant farmers, landless peasants hurt
  • Informal urban sector growth
  • Migration from rural areas
  • Urban inequality and unemployment rise

High Growth and Rising Inequality (1991-2012): Class and distributional dynamics

  • Increase in demand for luxury consumption
  • Jayadev et al. (2007)
    • Steady increase in wealth inequality
    • Intra urban and urban-rural inequality rose
  • Banerjee(2005)
    Year Wage share of Value Added Profit share of Value Added
    1985 33% 16%
    2000 17% 30%

High Growth and Rising Inequality (1991-2012): Class and distributional dynamics

  • Other features
    • Strong decline in redistributive policies
    • Fall in wage in the organised sector
    • Increasing unemployment
    • Stagnation of agriculture

Summary

  • Indian economy witnessed 4 different regimes of growth and development
  • Regime 1 + Regime 2 (1951-80): Hegemony of Indian State
  • Regime 3 (1981 -90): Hegemony of the state and the private capital
  • Regime 4 (1991-2012): Hegemony of private capital
  • 4 Different regimes
    • different growths
    • different distributional dynamics
    • different roles of the state
    • different kinds of crisis
  • Through the entire period, there was the emergence of private capital and professional class ready to use the markets and the state in their interests.

Questions

  1. Out of the regimes discussed, which regime/regimes do you find more appealing and why?
  2. Bring out a comparative analysis of the four different regimes discussed in the paper.